Catch and Release

Corrections to a tax bill could save thousands of small businesses in Texas from the gross receipts tax approved by lawmakers a year ago. Lawmakers might raise the minimum revenue requirements, letting more companies escape the new levy.

The new business tax approved by the Legislature last year has a couple of mistakes in it, and lawmakers want to fix those while ducking new attacks, revisions, special deals, amendments, and changes that might shrink what the new tax is supposed to bring in. But they also don't want to be accused of raising state taxes again, so they're putting the repairs into a package that spends the same amount of money it raises. That "spending" could get a lot of small businesses off the hook.

The fixes — contained in HB 3928 by House Ways & Means Chairman Jim Keffer, R-Eastland — are aimed at three problems with the bill (and maybe more, as they're still writing).

One — the biggest — is the difference between the words "gross" and "net" in how the tax applies to partnerships that hold rental property, like apartments or office buildings. Lawmakers meant to tax their adjusted gross income, but the law says net instead of gross. How big is it? That's a $200 million difference to the state treasury.

The second is a glitch in how banks apportion their taxes — that's the term for figuring out how much of a multi-state company's business is in Texas and how much is outside and non-taxable. The issue is over how to account for securities sales by banks; the bankers say the formula in the state's new business tax would have them paying Texas taxes on profits instead of on gross receipts, and would mix Texas and non-Texas transactions. The tab for that change, we're told, could be as high as $70 million a year (some estimates are considerably lower).

And there's an accountant and lawyer fight over how businesses can carry forward current losses into future year tax returns (if you want to sound hip at the Tiki Lounge, the tax nerds call it the "non-operating loss carry-forward," or shorten it to "the NOL issue"). That's a commonplace in tax law, but the formulas are botched in the change from the old tax to the new one and the revenuers want to make the language clear enough to quiet the lawyers and accountants. That's relatively small in financial terms, but it's a hole they'd like to patch.

Put all of it through some sloppy, back-of-the-envelope math: The state would gain $200 million on the first deal, spend up to $70 million on the second, and then spend some change — $10 million, say — on the third. That still leaves more than $100 million to subtract to get the desired Zero on the bottom line.

It's not in ink yet (that we've seen), but lawmakers are looking at the trigger for the tax. Right now, any business with more than $300,000 in gross receipts has to pay the new tax. Raising that number would shrink the number of taxpayers — listen for the cheer from small business — and wouldn't have a serious impact on the overall tax.

This is invisible to the state's big companies, but it's a big deal for some businesses, especially those that are right on the line of eligibility. Companies don't get to deduct their first $300,000 in sales; if they sell a dollar over the limit, they're taxed on all of their business (Back to the back of the envelope: A company with gross receipts of $299,999 would owe no tax. A company with a gross of $300,001 would owe up to $2,100 because of the last $2 in sales). And while it wouldn't cut the number of filers — businesses file even if they don't owe the tax — it would cut the number of companies that owe the state money every May.

The numbers aren't set yet. Lawmakers will get a cost or gain assigned to each of their "fixes" then figure out what they need to subtract to zero out the bill's fiscal impact. They'll have to guess at where to set the new trigger. Comptroller Susan Combs surveyed business taxpayers to see how they'd fare under the new levy, but that survey didn't include small businesses with revenues around that trigger amount. You'll find some numbers out there if you scratch around. A bill by Rep. John Smithee, R-Amarillo, would raise the trigger to $1 million in annual receipts before a taxpayer had to pay the state. The comptroller said that would cost around $200 million annually. Another bill, by Rep. Brandon Creighton, R-Conroe, would raise it to $600,000, at an annual cost to the state of around $75 million. With $100 million to burn off, Keffer's fix would probably fall somewhere in between.

Footnote: Senate Finance Committee Chairman Steve Ogden, R-Bryan, filed an identical bill earlier this month in case the House bill stalls. Tax bills have to state in the House, but since this patch wouldn't raise any money — net, anyway — you can argue that it's not a tax bill and that it can, if needed, start in the upper chamber.

The 98 Percent Solution

Sen. Steve Ogden, R-Bryan, told critics that the state budget he helped draft is within two percent of just what they wanted.

Without any serious doubt he'd pass a $152.2 billion state budget, Ogden found himself stuck between senators who thought he'd spent too little and those who thought he'd spent too much. For both sides, the infractions totaled about $3 billion, or two percent of the total.

Sen. Eliot Shapleigh, D-El Paso, wondered why — with nearly $3 billion sitting available and unspent — Ogden didn't put more money into things like the Children's Health Insurance Program, or CHIP. Republican Dan Patrick of Houston said he and his staff had come up with $3 billion that could be cut from programs Ogden included in the spending plan.

Five senators voted against the budget, including those two, Arlington Republican Chris Harris, La Porte Republican Mike Jackson, and Houston Democrat Rodney Ellis, a former chairman of the Finance Committee who said he was disappointed with spending on college aid programs and CHIP. 

Overall spending would rise 6.8 percent in the Senate plan. General revenue spending, which comes from state taxes and other sources, would increase 12.3 percent. Neither number includes the $14 billion being spent by the state for the first time on public schools in return for lower local property taxes. And a bunch of the general revenue spending increase — almost $2.5 billion — goes to pay back two accounts — the rainy day fund and the foundation school program — from which lawmakers borrowed last time they were out of money.

The Senate proposed spending about $1 billion more than the House, once you account for $1.77 billion added to meet the terms of a settlement of the Frew v. Hawkins lawsuit. Mothers of kids who are entitled to government services sued the state 14 years ago, saying their children were denied access to those programs and to doctors and dentists who would take Medicaid cases. The Senate accommodated the expense by offering across-the-board cuts. Ogden has indicated there'll be adjustments to that, but it bought some time. The House was finished with its initial budget round, and hasn't had to change its bill yet to include Frew.

The Legislature hasn't assembled its side-by-side analysis of the House and Senate bills, but an outside group — the Center for Public Policy Priorities — has taken a crack. There's a copy on their website. And the Legislative Budget Board's website has copies of both budgets and of both summaries, which are written in English instead of Arithmetic.

Differences include teacher pay (the House passed an across-the-board pay raise, while the Senate used its money for an incentive pay program), higher education, where the Senate spent a little more money, border security (the House spent money where the governor wanted it, while the Senate broke it up into pieces here and there), and prisons (the Senate wants to build new ones, the House concentrated on rehab programs.

The House would spend more on CHIP, opting to keep 12-month eligibility renewals and different eligibility requirements. Lt. Gov. David Dewhurst, saying the battle over six- and 12-month eligibility for CHIP was "something made up by some zealots and magnified by the press," said he's pushing for something he calls "continuous eligibility," which he said would eliminate the bickering over six- and 12-month renewals.

One difference between the House and Senate plans is Quality Assurance Funds, or QAFs, that the House used to partially fund fee increases for doctors, dentists and nursing homes. The money is generated from a fee at nursing homes, which is given to the state and then sent to the federal government for matching funds (they return $5 for every $2 the state sends up). The returned money is used in the House budget to increase those reimbursement rates.

The Senate got burned a few years ago when it passed a fee on nursing home patients that was branded a "granny tax." Since that nasty experience, they haven't been willing to come back for another ride. Nursing home operators didn't get what they wanted from the House, but they got less still from the Senate. Even getting the full QAF, they say (they're getting about a third of it) would leave them short of their costs. But they'd like that better than something that leaves them far short of costs.

Numbers are still a little fuzzy after the Frew settlement, but both chambers left about $3 billion off to the side. That's without a real precedent. Lawmakers have left specific amounts unspent before in anticipation of particular needs. This time, though, the amount is huge, and the stated future use isn't a clear amount. The Lege could spend $3 billion more than either budget requires, but they're keeping the money in case they come up short next year when property tax cuts kick in.

On the other hand, they have long wish lists in the section of the budget set aside for such things. If they're willing, they could pay for some of those items.

Second Dose

He may not have been aware of it at the time, but Gov. Rick Perry was picking a fight with Republican legislators when he issued a Feb. 2 executive order mandating HPV vaccination for Texas middle school girls. And this is one fight legislators aim to finish by the end of this session: After a few weeks of quiet, the Senate Health and Human Services Committee approved three HPV-related bills, including one that would proscribe mandatory vaccinations for four years.

The last shot at a mandated HPV vaccination — SB 110 — was defanged by Sen. Leticia Van de Putte, D-San Antonio. Citing political opposition and what she called "emotional ventilation," she replaced her mandate legislation with a measure that requires the Texas Education Agency to instruct school districts to provide HPV and cervical cancer information from state health officials to parents of female students.

Earlier in the session, the House overwhelmingly passed HB 1098 by Rep. Dennis Bonnen, R-Angleton, which would reverse Perry's mandate. Sen. Glenn Hegar, R-Katy, added a sunset provision: Without legislative action, the ban on mandatory HPV vaccinations would end in the year 2011. It also includes language related to HPV education, but is more general than the other two bills.

In the relative quiet since the House bill passed, lawmakers have been working privately. Bonnen and Hegar met before Easter to discuss the changes to the legislation, and appear to be on the same page: "Sen. Hegar and I have worked incredibly closely on this," Bonnen said. Van de Putte also said she and Hegar met to make sure their bills dovetailed.

The full Senate could hear HB 1098 as soon as Wednesday. Avoiding a conference committee (and the delay it entails) could be important to the future of the bill, considering its blatant opposition to the wishes of Gov. Perry, who holds veto power.

Perry spokesperson Krista Moody wouldn't say whether or not he plans to veto the bill, but pointed out that statute overrides executive orders.

"An executive order is just a formal way for the Governor to throw support behind something," Moody said. She likened it to a press release or phone call: "So to overturn it, that would be like overturning a press release."

The target date for legislators to get the bills on Perry's desk is the first, maybe second, week of May, said an aide to Senate Health and Human Services Chairman Jane Nelson, R-Lewisville.

Getting the bills to Perry by then would allow legislators plenty of time to override a veto (requiring a 2/3 vote in the originating chamber) before they break at the end of May.

Nelson sponsored HB 1379, the third HPV-related bill approved this week. That third bill — HB 1379, authored by Rep. Joe Deshotel, D-Beaumont — charges DSHS with compiling and disseminating information to the public and healthcare providers about HPV. This DSHS data is the information to be distributed to public schools under Van de Putte's legislation.

It also calls for DSHS to create a Web site containing HPV information, and it instructs DSHS to cooperate with the Texas Cancer Council to promote educational programs.

Nelson also got two riders into the budget that would provide money for cancer prevention programs, such as screenings and Pap smears.

The American Cancer Society estimates about 11,500 women will be diagnosed with invasive cervical cancer in the United States in 2007. About 3,670 U.S. women will die of cervical cancer this year. The cervical cancer rate for Hispanic women is nearly double that of Anglo women. African-American women have a 60 percent greater chance of developing cervical cancer than Anglo women.

The HPV vaccine effectively prevents 70 percent of cervical cancers and 90 percent of genital warts. Officials with the Texas Health and Human Services Commission said HPV vaccine (the only FDA-approved one is Gardasil, made by Merck) is covered by Medicaid under the Vaccines for Children program, which provides vaccinations to Medicaid-participating physicians. The Centers for Disease Control added the HPV shot to its list of recommended vaccines back in 2006.

— by Patrick Brendel

Things Little Birdies Say

Ask Austin Democrat Ben Barnes about the rumor that he might run against U.S. Sen. John Cornyn, R-Texas, next year, and the first answer is, "That's just a rumor."

The former Texas Speaker and lieutenant governor says "some people came to me" and asked about the possibility. The rumor zipped through Austin political circles on a day when the Legislature was still on its four-day Spring Break and news was thin.

"It's not something I'm thinking about and it's not something I'm not thinking about... I've not made a call or I'm not going to make a call."

Barnes met with some Texas Democrats over the weekend, and word got out that some of them told him he should run. He says that's so, but didn't commit to a No or to a Yes.

"People ask me in Washington [D.C.] if a national candidate can win in Texas, and I say 'nobody's tried since Jimmy Carter.' Even when [Lloyd] Bentsen ran [in 1988, with Michael Dukakis], they didn't spend any money down here," he says.

But Dallas County has flipped some seats to the Democrats from the Republicans, and Harris County appears to Barnes to be ready to do the same thing.

"I think the Democratic Party is seriously going to have a chance to win some statewide offices [in the next elections] and maybe to win a Senate seat," he says.

"Anyone that's a Republican could be vulnerable to a Democratic challenger... depending on the challenger," he says. And he works in a little daylight for the incumbent: "I'm not saying Cornyn could be beat or not, but that's what you asked... It's not inconceivable that a Democrat could win."

Buck It

The hunch around here is that you'll see more letters like the one from Public Utility Commission Chairman Paul Hudson, and not for the reason you might think.

Hudson wrote to the legislative chairmen who oversee electric and telecom issues, saying he'd been told TXU scared away a potential bidder for one part of its business by threatening a lawsuit. Sharyland Utilities, he wrote, had told the PUC privately that they planned to bid on part of TXU. A few days later, they called to say they'd been threatened with legal action and that that "precluded them from proceeding."

Hudson effectively moved the issue off his desk and over to the Legislature, an action that might be useful in other agencies. Or that would have been useful, at one point, for the Texas Youth Commission.

That has nothing to do with utilities or teenaged criminals, but with state government. If warning the Legislature is the best way to protect yourself, you want the Lege. And if the warning would get you whacked, you turn your back. TYC's troubles ó especially including the part where they didn't loudly warn anyone ó came at a time when the Pink Building seemed to want no bad news. Now? The Legislature seems to want to know everything that's going on.

Don't be surprised if Hudson's just the first.

Not Losing GRIP After All

The sins of Atmos Energy apparently won't bring trouble down on others in that industry.

Lawmakers and city officials got wound up about the kinds of charges Atmos was passing along to customers. The Gas Reliability Infrastructure Program (GRIP) allows utilities to add allowed expenses without a rate case, and the stuff that Atmos put on the tab was surprising to some regulators and also to some lobbyists. Their charges included a bunch of airplane flights, golf and camera equipment for retirement gifts, subscriptions to National Geographic, membership in the Dallas Symphony Orchestra, cases of wine, hotel expenses, and a mess of "employee welfare" expenses.

Sen. Kevin Eltife, R-Tyler, initially wanted to end the program that let them seek reimbursement for that stuff, but backed off at the urging of other gas companies that haven't had similar trouble. The Senate approved a version that would tighten up the definitions of what's allowed and what's not, and Eltife says if the new standards are abused, he'll kill the GRIP program.

Political People and Their Moves

The two officials who allegedly abused kids at the Texas Youth Commission prison in Pyote and started the earthquake still rattling that agency were indicted by a Ward County grand jury and then arrested. Ray Edward Brookins, former assistant superintendent at West Texas State School, was charged with having improper relationships with students, and with improper sexual activity with a person in custody. John Paul Hernandez, former principal there, was charged with sexual assault, improper sexual activity with a person in custody and improper relationships with students.

TYC named a new inspector general: Bruce Toney, who's been in the IG office at the Texas Department of Criminal Justice for 12 years, is moving to the prison system for youths. He replaces Ray Worsham, who was fired after allegations he altered documents.

Birthday wishes to former Gov. Bill Clements of Dallas is 90 (on April 13).

Recovering, off-site: Rep. Paul Moreno, D-El Paso, in his hometown after an undetected cut caused serious bleeding.

Recovering, on site: Sen. Mario Gallegos, D-Houston, returned to the Senate to vote on the state budget, the first time he's been back since liver transplant surgery.

Quotes of the Week

Sen. Eliot Shapleigh, D-El Paso, during the floor debate on the state budget: "What's more important? Tax cuts for millionaires or the children of Texas."

Finance Committee Chairman Steve Ogden, R-Bryan: "We have an obligation to do both, to keep a constitutional school finance system and to fund the programs you're talking about. Your problem is you don't think we can do both. I'm telling you we can."

Sen. Dan Patrick, R-Houston, arguing that the budgeteers didn't property scrub the budget for waste and inefficiency: "We found what we think are $3 billion in cuts."

Sen. John Whitmire, D-Houston, to Ogden after Shapleigh attacked him for leaving money on the table while programs go wanting, and Patrick attacked him for rapid growth in state spending: "You deserve an award... I think that indicates you've done your job."

Lt. Gov. David Dewhurst, asked about Democratic criticism for his missing routine business filings with the state while touting the ease of frequent renewal filings from recipients of the Children's Health Insurance Program: "I'm not going to respond to any political attacks in this forum. If folks want to attack me politically, they can wait until 2010 to do that."

Rep. Mike Krusee, R-Austin, after he and four other House members were overwhelmed by 134 votes in favor of a two-year moratorium on new toll roads, quoted in the San Antonio Express-News: "When you wake up in the morning, there's going to be 1,000 new people in this state and a thousand more after that, every day a thousand more people."

Gary Durbon, athletic director for the South San Antonio ISD, quoted in the San Antonio Express-News on legislative proposals to test high school athletes for steroids: "No one sitting in Austin, Texas, knows what in the hell is going on at South San High School, Churchill High School or Smithson Valley High School. All they know is how to throw out these rules."

Will Harrell, executive director of the American Civil Liberties Union's Texas chapter, on Texas Youth Commission reforms approved by the Senate, in the Austin American-Statesman: "It would take five years of litigation to achieve what the Legislature is proposing today."

Rep. Pat Haggerty, R-El Paso, on a marriage bill: "The bill says those that are married live longer. It's not really true. It just seems longer."

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Texas Weekly: Volume 23, Issue 41, 16 April 2007. Ross Ramsey, Editor. Copyright 2007 by Printing Production Systems, Inc. All Rights Reserved. Reproduction in whole or in part without written permission from the publisher is prohibited. One-year online subscription: $250. For information about your subscription, call (512) 302-5703 or email biz@texasweekly.com. For news, email ramsey@texasweekly.com, or call (512) 288-6598.